The process of doing a Roth conversion is not particularly complicated. What CAN be complicated is the decision about whether or not to do one and how much to convert.
How to Do a Roth Conversion
Step 1 – Transfer money from your traditional IRA to a Roth IRA.
Step 2 – Pay taxes on that money.
That's really all there is to it. Simple, no? There are a few variations. For example, you can transfer money directly from a 401(k) to a Roth IRA (and then pay taxes.) You can also, if the plan allows it, transfer money from a 401(k) to a Roth 401(k) or a 403(b) to a Roth 403(b) (and then pay taxes.)
Benefits of a Roth Conversion
There are a number of benefits of a Roth conversion.
- That money will never be taxed again (although estate or inheritance taxes could apply)
- No required minimum distributions on that money (not true in a Roth 401(k) or 403(b))
- If left to heirs, no income taxes for them either (better to inherit a Roth IRA than a traditional IRA)
- Assuming you're using a taxable account to pay the taxes, you are getting more money, on an after-tax basis, into a tax-protected and asset-protected accounts. In essence, you're transferring money from taxable to tax-protected.
- Done properly, you may be lowering your overall lifetime tax burden
- Smaller Required Minimum Distributions after age 72.
- May reduce estate/inheritance taxes due by removing “the government's portion” of retirement accounts from the estate.
The Downside of a Roth Conversion
There is really only one downside of a Roth conversion
- You pay taxes on it.
Did you get that? This isn't like a backdoor Roth, where you're comparing a taxable account to a Roth account. The Roth account always wins in that scenario. In this scenario, the Roth DOES NOT always win. In fact, it can be a pretty complicated decision.
When To Do A Roth Conversion
The idea behind a successful Roth conversion is that you want to prepay taxes at a lower rate than you would pay them later. Sometimes, there is another benefit, such as the ability to do a backdoor Roth IRA going forward (this occurs in situations where you cannot roll a SEP-IRA or traditional IRA into a 401(k) of some type.) So when are good times to do a Roth conversion of tax-deferred assets?
- As a student, resident, or upon residency graduation.
- During a sabbatical or other low-income year.
- While temporarily disabled (assuming disability income is tax-free).
- While in the military.
- After cutting back to part-time.
- In early retirement, before receiving Social Security.
- When you have a particularly low Roth to tax-deferred ratio and desire more tax diversification.
Basically, any time it would make sense to make Roth 401(k) contributions, it probably makes sense to do Roth conversions.
When are bad times to do Roth conversions?
- During peak earnings years (not always, especially for supersavers and those expecting to be in the top tax brackets in retirement)
- When you are converting money you would give to charity anyway.
- Using money you would give to heirs who are in a low tax bracket.
- When you don't have taxable money you can use to pay the taxes (not always, in fact this only slightly decreases the value of a Roth conversion)
- When you don't have much of a tax-deferred account.
Remember that in retirement, especially early retirement, you want to have enough taxable (i.e. tax-deferred account withdrawals) income to fill the 0%, 10%, and 12% brackets. So it's usually silly to convert anywhere near ALL your tax-deferred money to Roth money.
How Much Should I Convert?
The general rule is that you convert up to the top of a certain tax bracket. That might be the 12% bracket or perhaps even the 22% bracket in 2020. Generally doing conversions above this amount isn't advised, unless you expect a great deal of taxable income in retirement (and would be paying 24%+ on retirement income.) Practically speaking, what does that mean?
Consider this example.
Doctor Jones is 55 years old and has $2 Million in tax-deferred assets, $700,000 in taxable accounts, and no Roth accounts. He has cut back to part-time and now makes $80,000 per year. This year he will begin maxing out a Roth 401(k) and personal and spousal backdoor Roth IRAs. His spouse does not work and they will be taking the $24,800 standard deduction now. He thinks a Roth conversion is a good idea for him, but is unsure how large of a conversion to do this year.
If you think it looks challenging to climb up, you should try skiing down!
Let's assume his tax-deferred assets grow from $2 Million to $2.5 Million at the time of his retirement. Let's also assume that between him and his wife, they'll get $50,000 a year in Social Security, 85% of which will be taxable. Assuming the $24,800 standard deduction, his taxable retirement income will be around $122,000, squarely in the 22% bracket. Thus, it probably does NOT make sense to pay taxes at more than 22% now in order to do a Roth conversion. 22% makes sense for his situation (no Roth and plenty of taxable to pay the taxes.) 12% is a great deal.
His current taxable income of $55,200 is well within the 12% bracket. The first $25,050 he converts this year will be done at 12%. That much is a no-brainer. It would probably be advisable for him to convert another $90,800 (filling the entire 22% bracket) this year as well. That conversion will cost him $25,050*0.12 + $90.800*0.22 = $22,982. He can certainly afford that given the size of his taxable account.
Between his Roth 401(k) contributions, his backdoor Roth IRA contributions, and his Roth conversions, (and probably spending some of the taxable money) he will rapidly be converting taxable assets to Roth assets, a great financial move. If he does this sort of thing 5 years in a row or so, he will have pretty nice tax diversification throughout retirement due to a sizable Roth account.
In short, Roth conversions can be a great tool, but run the numbers first. Roth does NOT always win this competition.
What do you think? Have you done a Roth conversion? Why or why not? Do you anticipate doing some in the future? Comment below!
WCI-
I have maxed out my 401k and HSA and am looking to do a backdoor Roth for my wife and I. She is non-working and has a rollover IRA of 8k. Marginal tax bracket 33%. Would it make sense to convert the 8k rollover Ira to Roth and put in 5,500 this year to her Roth or just convert the 8k and not make the additional 5,500 contribution? I know it would make more sense to convert her rollover into a 401k but since she is not working we don’t have that option.
Thanks,
Kevin
Why not do both? I would.
Ok, I wasnt sure if I would be taxed on the 5500 new contribution due to the pro-rata rule.
I am getting conflicting information and was wondering if anyone including our sponsor, Jim Dahle, has ever had the situation. I am just now completing my 2015 1040 and a rental property I sold in 2015 will have all its suspended passive activities losses realized in 2015. This will drop me from the 28 % tax bracket down to 0% tax bracket. It is refund city or I thought about doing a Roth conversion of an existing traditional IRA I have. Was uncertain whether I could do this conversion in 2016 for tax year 2015 as I have not yet filed my 2015 1040. My retirement accounts are with Schwab. I discussed with their retirement department. First said no problem. My personal broker who was going to assist me with the conversion paperwork contacted the retirement department herself and reported to me that a 2015 Roth conversion can not be done in 2016 and have it reported on my 2015 1040, even if I have not filed my 2015 1040 return. I am confused. Perhaps it has to do with whether the money is moved from a traditional IRA to an existing Roth IRA vs opening up a new Roth IRA to receive the transferred money from the traditional IRA. Just wondering if anyone on this blog or Jim has run into this problem. Thanks in advance. And Jim, I LOVE your newsletter. Keep up the good work!!
Nope. Great idea but you needed to do that conversion by Dec 31st to include it on your 2015 taxes. Embarrassing that Schwab didn’t know that.
Can someone explain this quote from the article: “Remember that in retirement, especially early retirement, you want to have enough taxable (i.e. tax-deferred account withdrawals) income to fill the 0%, 10%, and 15% brackets. So it’s silly to convert anywhere near ALL your tax-deferred money to Roth money.”
We live frugally now, invest 60% of our income, and expect to retire with more annual income than our current taxable income amount. Why wouldn’t we want to maximize Roth investments, ideally having all our retirement funds in Roth, and minimize taxable retirement income?
I partly ask because my wife currently works part-time as a family doc, but plans to go full-time in a few years once the kids are all in school. She’s wondered about changing employers so we can convert her current traditional 403(b) and 457(b) accounts into Roth IRAs while her income is still lower.
Thanks!
You would want to. Those with big pensions or lots of rental property income etc do want to do Roth 401(k) contributions, conversions etc. You realize you’re very rare though, right?
Thanks WCI. I’m genuinely still confused though by the excerpt I quoted from your article. Why would most people need enough funds in taxable (i.e. tax-deferred account withdrawals) income to fill the 0%, 10%, 15% tax brackets, instead of striving towards all in Roths and not having to pay taxes in retirement?
Why would you pay taxes now at 37% when you could pay them later at 12%? Does that seem wise to you?
Thanks again WCI. Yes, of course, that makes perfect sense. Hence why doing Roth conversions during a year of low-income or when you retire early and before RMDs kick-in makes sense. Apologies, I wasn’t reading your excerpt as saying that, and was worried I was overlooking an important consideration.
I suppose an important factor that doesn’t get discussed often when deciding whether or not to do Roth conversions is the number of years you have left before retiring.
Take your example: It may make sense to pay 37% tax now, if you have 30 years before retirement and you expect your investment to grow 3-fold in today’s dollars by the time you retire. In that case, 37% tax now roughly equals 12% in the future ($400k x 37% = 1,233k x 12%). Though, in real life, the RMDs for this person would almost certainly force them into a tax bracket higher than 12%.
Two resources I’ve found helpful in calculating what is best is the Extended Parameter ORP calculator: https://www.i-orp.com/DropHSA/extended.html
And this article by Kitces: https://www.kitces.com/blog/tax-efficient-retirement-withdrawal-strategies-to-fund-retirement-spending-needs/
Thanks so much for all you do. I’ve been learning so much from your site and podcast.
The length of time does help some, but not as much as many think. The reason it helps ISN’T (as many think) because you have more time for “tax-free compounding” because it’s in a Roth, but because a larger percentage of your investments on an after-tax basis are in any type of tax-protected account.
Via email:
It also works for those of us who expect our marginal rate to not change much in retirement. It puts that much more of your means beyond the reach of the IRS. In my case, it’s being used as a de facto annuity on behalf of my daughter, who can stretch it for many years.
WCI, are there factors that discourage employers from offering in-plan Roth conversions? I ask because my wife’s employer does not offer this feature, and I’m toying with writing the benefits department to ask if they would consider adding it. It would be helpful to know beforehand what factors (if any) discourage them from offering this feature.
Thanks.
I see no reason for an employer not to put in ALL the features (in-plan conversions, Roth 401(k) contributions, loans, rollovers into the plan etc) other than in-service withdrawals. But I think most of those making the decisions (and the broker types who are often the ones providing the plans) aren’t all that informed about what is possible.
I clearly see how conversions up to the 15% bracket make sense. Is it worth it for a resident making ~$60,000 – 65,000 to do Roth conversions up until the 22% ($82,500) tax bracket now that the tax bracket has changed? This is assuming we are in our late 20’s and early 30’s, are single income generators, and receiving the standard deduction of $12,000.
Here is my thought: The same resident, whether married or single, will likely withdrawal from their Traditional Roth/401 Accounts and be in the 22% tax bracket during retirement (assuming a similar tax bracket). Therefore, the only variable that is different is the time within the Roth IRA account making non taxed dollars but WCI had mentioned that this is not a huge factor.
Just curious on your thoughts. Thanks!
There is no 15% bracket any more. It’s 0% (standard deduction), 10%, 12%, and 22%.
Is 22% worth it? Probably for most. But no way to know for sure unless I knew what your financial life and the tax code is going to look like for the next 50 years.
I am having a little trouble in the decision to convert my IRA to a roth IRA and could use some advise. I recently finished residency last month and came across the WCI book embarressingly from one of my second year residents. I had previous job with pension that I rolled into an IRA when I left the job approx 4 years ago that I have just left sitting with my prior FP before reading and getting things set up at vanguard for myself as a DYI investor. I do live in a region of the country where moonlighting is common and made a taxable income last year of ~161K, so expect roughly half the year to be around that and half the year under my new job as contract through my S corp which I estimate to be total taxable income of roughly 335K. My current IRA at vanguard is ~64K. I was really hoping to convert before I have full attending pay next year and so that I could fund 6K this year through back door roth. I looked at a couple of calculators for tax calculations on roth conversion and getting around 20K federal and 3K state (5%), which seems like a little too much and I do not not have the money to pay the taxes currently but might by the time I do taxes next year. Considering other options like seeing if I can roll over to a 401K with another company (fidelity, schwab, etc) but I set up a 401K and roth 401K at vanguard and was hoping to keep my accounts in one place. I am not sure if I roll this to another company if I would be able to just leave it and be able to start contributing to my 401K at vanguard? Any advice in the matter would be much appreciated. I apologize if this is not the most financially literate post but I am only about 3 months into my financial education, thank you guys for your blog and all the effort you put into it!
Vanguard’s Individual 401(k) doesn’t accept IRA rollovers. So you have a few choices:
# 1 Don’t do backdoor Roth IRAs
# 2 Do the contribution step but hold off on converting for a few years until something changes.
# 3 Move your 401(k) somewhere else and do an IRA rollover
# 4 Convert the IRA to a Roth IRA and pay the taxes.
Yes, of course you can contribute to the 401(k). The pro-rata rule only applies to Roth conversions, i.e. the Backdoor Roth IRA.
Thank you for your help, your website has been a blessing and I have found your course very helpful as well. I am between just paying the tax and converting to roth vs. rolling the IRA to a 401K with fidelity but will go over the numbers again and make a decision.
I would presume that the calculus might change from late 2015 to the present, when current tax rates are quite low but the prospects are very good (bad?) for much higher marginal rates if we end up with a socialist-lite Congress and President.
I would think that one other reason to get investment money out of tax-deferred accounts and into tax-free is that you pay tax as if it were income rather than at capital gains rates, but maybe I am overthinking.
I have been very fortunate the past few years between having cut back to half time, living off of savings in taxable accounts, and putting all of my earnings into our practice’s cash balance plan, giving me plenty of headspace for annual $300K Roth conversions.
Sounds like you’re doing your conversions right to me, but bear in mind higher overall rates don’t necessarily make a conversion good because you still have effect of filling the brackets.
The ordinary income tax vs capital gains is a non-factor in the decision in all but an extreme circumstance however.
Can someone max out their employer 401k, their self employed solo 401k, and still do ROTH conversions?
Asked another way…are ROTH conversions limited or affected at all from the retirement contributions of the individual during that year?
Yes.
No.
It can be important for married couples with significant assets in tax-deferred accounts to keep in mind the ‘widowed spouse being thrust into a higher tax bracket due to RMDs’ problem. Take, for instance, a married couple with $165k of taxable income due in large part to RMDs is in the 22% bracket. If one of them passes away and income remains the same (it would almost certainly drop due to one of the spouse’s Social Security benefits stopping), the survivor would then be in the 32% bracket after losing the ‘qualifying widow(er)’ status in two years. Therefore, it can make sense for the married couple to do some Roth conversions even if this pushes them into the 24% bracket.
That’s a great point. If one spouse lives a lot longer than the other, Roth conversions can be a better idea than otherwise.
(Crosspost with one in the Forum)
Really useful blog post – thank you!
I’m sure this question just involves a little math, but here it is: Assuming one could go either way on continuing to work but wants to maximize available funds, is there a time when it makes more sense to retire at 65 to have several years of Roth conversions available, as opposed to continuing to work to add to ones savings? The value of the conversion is the differential tax rate paid when converting and paying later, and that needs to be compared to further savings between 65-72, including 401K contributions and the tax and RMD consequences of that. Also, my best guess is that tax rates will be higher in future years – I guess that’s something addressed theoretically by diversifying tax statuses of account types.
Let’s say I will retire with some 4M at 65, and let’s call it 5M if I work to 70. How much can forgoing that extra 1M in savings be compensated for by the benefits of conversions?
I suspect only a little. I wouldn’t let that be a major factor in the decision of when to retire.
WCI,
I think this article covers most of the things to look out for when doing conversions, but the reader has to read carefully the full article. If they just skim and read the Benefits and the Downside they may get the wrong impression. I would even go a bit farther and say for “most” their taxes will be equal or lower during retirement (given no changes in the law) thus making the Traditional money more valuable except for larger lump sum payments you may want to make. That simple fact (if it turns out to be true) makes at a minimum 5 of your 7 Benefits actually Downsides and your one Downside a Benefit. For instance the benefits change to the following if tax rates in retirement favor the Traditional IRA.
1. The money may never be taxed again but you WILL have less of it. Your dependable income will be less because you wasted too much on the tax.
2. RMDs will be due and will be higher — but not significantly different for a few Roth conversions when you are in a lower tax bracket.
3. Same as 1 above — do you want to leave your heirs more or less dependable after-tax income. You have to get the decision of how much Roth to have correct in order to do so.
4. Here again you are assuming getting more money in the Roth is the right choice, if you make the wrong choice, paying the tax from the taxable account generally won’t fix that.
5. Yes this is the key – do the Roth conversions properly — meaning when there is a high likelihood of success that tax rates will be higher in retirement.
6. No argument here. RMDs will be smaller — whether that is good or bad is unknown.
7. Granted, in some cases you can reduce inheritance taxes, if they apply.
Finally, since this article was originally written in 2015 it doesn’t address the fact that heirs (other than the spouse) will in most cases (not all) be required to withdraw the total IRA by year 10. This may or may not be a problem to the heirs depending on their tax situation and the size of the IRA at the time of inheritance all things not easily predicted.
Your concerns have certainly been addressed elsewhere on this site. In this particular article, they were addressed in the section titled “When are bad times to do a roth conversion”, specifically:
I have a traditional IRA with about 60K and will be graduating residency soon. What should I be doing with this account? Should I rollover to a 401k/403b, or should I pay my dues next year (half-attending salary) so that I can Roth convert?
You could go either way- depends on your goals and a few factors. How much of Roth money do you already have? Would you like to add to it to give it a good bump before your peak earnings start at graduation- helping to further tax-diversify your retirement holdings? Do you have the money to pay taxes for the conversion (assuming they were deductible IRAs)? Well, you likely will- from your attending income. Would you rather spend that money paying down student loans? there are lots of competing uses for your money at this time. Rolling it into a 401k avoids these issues. Remember though, it may be a full year before you are allowed to participate in the new 401k- depending on your employer’s rules.
Best,
PFB
I think I may have misunderstood your question. You’re not asking about Roth converting that Traditional IRA- but about Backdoor Roth’s in the future. Again, either way is fine, the factors are pretty much the same as above.
Crosspost from the Forum
Really useful blog post – thank you!
I’m sure this question just involves a little math, but here it is: Assuming one could go either way on continuing to work but wants to maximize available funds, is there a time when it makes more sense to retire at 65 to have several years of Roth conversions available, as opposed to continuing to work to add to ones savings? The value of the conversion is the differential tax rate paid when converting and paying later, and that needs to be compared to further savings between 65-72, including 401K contributions and the tax and RMD consequences of that. Also, my best guess is that tax rates will be higher in future years – I guess that’s something addressed theoretically by diversifying tax statuses of account types.
Let’s say I will retire with some 4M at 65, and let’s call it 5M if I work to 70. How much can forgoing that extra 1M in savings be compensated for by the benefits of conversions?
What about others factors of when to do one such as waiting for a bear market for a conversion? I suppose that goes against the “don’t time the market” guidance. But I’m kicking myself for not doing mine 2 months ago! My current Rollover IRA from my previous employer is relatively small ($60k) for me, even if I pay 24% tax on that I’m thinking that at my ripe young age of 37, it would be worth the tax free growth to pay an additional 2% now for 30 or 40 years of tax free growth. Correct?
James Lange suggested to do Roth conversions up to the 24% bracket
I am doing conversions to have 500k in case of health care needs
we are 70,69 and half way there
With my 18% effective tax rate in Fla, conversions are a NO BRAINER
Ok, stupid question…How is doing a Roth conversion different than doing a backdoor Roth conversion? It seems as though you are taking money from your traditional IRA and putting it into your Roth IRA in both cases. Therefore, it seems like doing a Roth conversion would be subject to the pro-rata calculation as well.
A typical Roth conversion has a tax bill because you are converting pre-tax dollars. In a backdoor Roth IRA, you are converting after-tax dollars to Roth dollars, so the conversion has no tax cost.
Yes, it is subject to the pro-rata calculation, but that’s okay since you expect to pay tax on it.
Does it make sense to do Roth conversions if still in the midst of PSLF? Simply because we would pay taxes and therefore increase income/not reduce amount forgiven?
My traditional IRA has been around for 5 years, would I benefit from the backdoor Roth option since I’m not doing it right after the contributions have been made?
Maybe not. Depends. It will certainly reduce amount forgiven under PSLF. In general, probably not a great move, although a Backdoor Roth IRA would be fine since you’re not losing a deduction.
Sure, assuming those are post-tax dollars in that IRA.
I am currently coming up on 2.5 years out of residency I have been doing a personal backdoor Roth since graduating and direct Roth before that. I got married 2 years ago and my wife had both Roth and Traditional IRA accounts. My questions:
1) In order to do a backdoor roth for my wife annually we would need to convert her traditional IRA to Roth IRA. She currently has about $30,000 in her traditional IRA. However, this is a taxable conversion and I am currently at my income earning peak! This year pre-tax I will be making right around $500,000 putting us in the 35% tax bracket. Would this be what you recommend. We have the money to pay the taxes on it if so.
2) If we do convert all of her traditional IRA to Roth for this year 2020, is the deadline April 15th, 2021? Or December 31st, 2020?
Thanks for all that you do!
I’d convert the $30K IRA. The deadline to avoid the pro-rata issue is December 31st 2020 if you do her Backdoor Roth IRA conversion step in 2020, or December 31st 2021 if you do it in 2021. It’s never April 15th. April 15th is the deadline for the contribution.
I just did a roth conversion of my residency 403b to my vanguard roth IRA (I just started work as hospitalist July 2021). Can I pay the taxes due in April 2022, or do I have to make a quarterly payment in October 2021? As a side note, I’m currently under contract for a duplex and planning to live on one side and make the other side a short-term rental and planning to use this to shelter taxes, so I was hoping to receive a tax refund in April.
It depends on whether you’re in the safe harbor or not. If you’re not sure, make a payment.
https://www.whitecoatinvestor.com/estimated-taxes-and-the-safe-harbor-rule/
Should one convert up to the 20-22 effective rate as much as they can as a resident with no state income taxes, age 71,70
My philosophy is that rates will go up in 2026 and a healthy Roth IRA can serve as well for any long term care
Would like to build it up to 1M
Any thoughts
PS-James Lange as well says to fill up the 24% bracket
Not sure if it was mentioned above, but I discovered a downside to Roth conversion. I am in partial retirement and have not yet had to take RMDs. Because of my pension/part-time work, in 2019, I was in the 24% bracket. My projected bracket for mid-late retirement was 32% or higher, so it seemed like a Roth conversion was a good idea, so I filled up the 24% bracket and paid the tax. The unintended consequence was that my income went up such that my IRRMA for Medicare premiums also went up about $500/month for my wife and myself. Because of this, I did not make a conversion for 2020. Fortunately, I was able to apply to Medicare (and received) a reduced premium for 2020. I actually qualify for a Roth contribution now, which does not change my income or Medicare premiums.
The other issue I discovered was this: my retirement accounts are large enough that my pension/SS/RMDs will exceed my income needs in retirement, so that it is likely that any money in a Roth account will never be used by me and likely pass to my kids. Therefore, in making a Roth conversion, I am taking my post-tax money (which is substantially less than my retirement money, and which I might use now for myself or my kids) and giving it to my kids (tax free, except for state inheritance tax) 20+ years from now. Not sure if Roth conversion is such a good idea for me. Am I missing something?
Might not be wise to do Roth conversions for your kids if they’ll be in a much lower bracket than you.
WCI,
“Might not be wise to do Roth conversions for your kids if they’ll be in a much lower bracket than you.”
One way to make time work for you is to skip a generation, while like you say don’t create extra income for yourself. $1000 in a grandchild’s Roth at age 15 (with appropriate earned income of course) could very well be $100,000 by their age 65. Do that five years in a row as I hope to and they could have $500k by 66 without doing anything.
Okay, I agree that compound interest is a good thing. I don’t have grandkids yet, but I’ve been doing that for my kids for years. My oldest leaves home soon and will do so with a mid 5 figure Roth IRA just because all of her teenage earnings went in there and the markets have been kind.
None of that has anything to do with the line you quoted though!
I’m in the same boat. The only thing I would say is that nothing prevents you from using your Roth money for your own spending. Better to have the money in the account earning tax-free than paying taxes on those earnings in your taxable account. It’s purely a win. You decide whether to spend it or pass it to your kids.
My wife has an orphan 401k that due to market downturn is now below the plan limit and is being forced into an IRA. I am going to convert it to a Roth IRA instead so we can keep doing spousal backdoor Roth contributions. I know that I am being incredibly naive, but I’m going to ask anyway: the amount in the account is actually now less than the cost basis, so I don’t need to worry about tax on the conversion, right? Thank you.
You’ll owe tax on the entire thing, sorry. At least the entire thing is smaller so the tax bill will be smaller too. That’s the good news.
UCSB,
Absolutely you will be taxed at ordinary income tax rates on the total value of the account.
UCSB,
Also in most cases, this is a two-step process:
1. First rollover the 401k to an IRA
2. Then do a Roth conversion.
Your cost basis (unless there is some after-tax money in your 401k) does not matter.
For example, if the size of the 401k is $20k, you will be taxed on the $20k at your ordinary income tax rate.
You can do a direct Roth IRA conversion starting a few years ago. It’s the same end result though.
Hi, I did Roth conversion(from Rollover to Roth) this month and am planning to do Backdoor Roth soon… is it difficult for filing tax if I do both Roth Conversion and Backdoor Roth? Is it better start Backdoor Roth next year?
No. Go ahead and do it this year.
what’s better than a Roth to leave to your kids
I opened moths for all my teenage kids which will be well over a million or two age 67